TaxTMI 
TaxTMI 
2013 (8) TMI 446
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....s' under Article 12 of the Double Taxation Avoidance Agreement between India and Netherlands ('India-Netherlands Tax Treaty'). 2. Without prejudice to the above, the learned CIT(A) has erred on facts and in law in taxing the reimbursement of expenses as 'Fees for technical services' under Article 12 of the India-Netherlands Tax Treaty. 3. Without prejudice to the above, the learned CIT(A) has erred on facts and in law in considering the higher of the amounts mentioned in the transfer pricing certificate (i.e. Form 3CEB) of the Appellant and the information as provided by Hazira Port Private Limited, Hazira LNG Private Limited and Shell Hazira Gas Private Limited (presently known as Hazira Gas Private Limited) under Section 133(6) of the Act as the total receipts of the Appellant (i.e. 116,849,305)." 2) Facts in brief as emerged from the corresponding assessment order dated 29.03.2006 passed u/s 143(3) were that the appellant is a Foreign Company, registered in Netherland, and in the nature of business , stated to be, " to perform accomplishment for the use of carrying on one or more branches of the Petroleum , Natural Gas , Coal and Chemical....
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....f the assessee before Ld. CIT(A) was that the assessee has only provided support service as per the ' Support Service Agreement' ( in short SSA) and the amount received was not the ' Fees for Technical Services' (in short FTS ) under the Double Taxation Avoidance Agreement, Article 12, between India and Netherland( known as India- Netherland Tax Treaty). 3.1) The assessee has also submitted that the difference in the total amount received was due to the different exchange rate applied by those concerns while giving information U/s 133(6) of the Act. 3.2 ) An another issue had cropped up before Ld. C.I.T.(A), on account of a remand report, in respect of the Permanent Establishment ( P. E. ) in India of the assessee i.e. Shell International B.V. ( in short SIBV). 3.3) From the side of the assessee certain reply and counter- replies were furnished and from the side of the Revenue a Remand Report was furnished. After considering those submissions the LD.CIT(A) has decided the issue in revenue's favour. According to him the assessee had entered into an agreement with certain entities at Hazira for providing various types of support service, salient features ....
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....xpertise to Hazira units. According to CIT(A) the assessee had technical expertise in that field which was provided to those concerns at Hazira. He has perused the agreement and thereupon commented that the technology of transportation of Natural Gas and LNG was provided by the assessee. According Ld. CIT(A) the technical services were made available as per Article 12 of DTA Agreement. Finally it was concluded that payments made by the Indian Companies were 'fees for technical services' hence given right treatment by the A.O. 3.5) About the grievance of correct amount received by the assessee, the CIT(A) has held as under :- "I have carefully considered the submissions made by the ld. Authorised Representative though the assessee has claimed that SHGPL has recognized, an additional sum of Rs. 4197783/- which was reversed in the following year but there is no such confirmation filed by the assessee to show that these amount has been reverse by the respective companies. Assessee can always approach the Assessing Officer for rectification in this regard if he is able to substantiate this claim. It has been claimed that the balance amount of Rs. 4629322/- is on acco....
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....otion 6. Assistance in LNG transportation and shipping 1. Establish port service agreement During the FY 2002-03 relatable to the AY 2003-04, the Appellant received the following amounts under the said SSAs: Payer Particulars Amount (Rs) HPPL Rendering support services under the SSA 2,99,50461 HLPL Rendering support services under the SSA 1,03,35,044 SHGPL Rendering support services under the SSA 5,82,26,204 SHGPL Reimbursement of mobilization expenses 95,10,671 Total 10,80,22,380 The return of income was filed by the Appellant by contending that the services rendered under the said SSAs being commercial in nature do not fall within the definition of Fees for Technical Services ('FTS') and therefore, are not taxable in India. Assessment Order u/s 143(3) The Income-tax Officer, Ward 1(4), Ahmedabad [hereinafter referred to as the 'learned Assessing Officer' or 'learned AO'] passed the assessment order holding that the revenues received under the said SSAs are in nature of FTS and hence, taxable at 10% under the provisions of the Arti....
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....n India as per Article 12 of the India-Netherlands tax Treaty. In this regards, Your Honours are requested to note that Section 9(i)(vii) of the Income Tax Act, 1961 (Act) defines the term 'fees for technical services' in a wide manner to any consideration for rendering managerial, technical or consultancy services. However, reference is also invited to Section 90(2) of the Income Tax Act, 1961 which clarifies that the assesssee can rely on the Act or the tax treaty, whichever is more beneficial. This view is supported by the Supreme Court in the UOI and Anr vs. Azadi Bachao Andolan and Anr (263 ITR 708) and also by Circular Mo. 333 dated 2 April 1982. Accordingly, the said provisions of the India-Netherlands tax treaty are reproduced hereunder: "fees for technical services" means payments of any kind to any person in consideration for the rendering of any technical or consultancy services (including through the provision of services of technical or other personnel) if such services: (a)..... (b) make available technical knowledge, experience, skill, know-how or processes, or consist of the development and transfer of a technical plan or technical....
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....ncluded services? Analysis: The fees would not be for included services. The American company is providing a consultancy service which involves the use of substantial technical skill and expertise. It is not, however, making available to the Indian company any technical experience, knowledge or skill, etc., nor is it transferring a technical plan or design. What is transferred to the Indian company through the service contract is commercial information. The fact that technical skills were required by the^ performer of the service in order to perform the commercial information service does not make the service a technical service within the meaning of paragraph 4(b). In view of the above, it is very clear that rendition of consultancy services which impart commercial information or knowledge would not constitute technical services and hence would not be taxable under the India - Netherlands tax treaty. The same view has also been upheld in the following decisions: 1. DCIT vs. Boston Consulting Group Pte Ltd. - 94 ITD 31 (Mum. ITAT) 2. Bharat Petroleum Corporation Ltd. vs. JCIT - 14 SOT 307 (Mum. ITAT) 3. Wockhardt Limite....
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....son rendering the services to the person utilizing the same is contemplated by the Article. * Some sort of durability or permanency of the result of the 'rendering of services' is envisaged which will remain at the disposal of the person utilizing the services. * The fruits of the services should remain available to the person utilizing the services in some concrete shape such as technical knowledge, experience, skill, etc. Additionally, one may also refer to the decision of the Authority for Advance Ruling in the case of Intertek Testing Services India (P) Ltd., In re (307 ITR 418) had observed: "By making available the technical skills or know-how, the recipient of service will get equipped with that knowledge or expertise and be able to make use of it in future, independent of the service provider. In other words, to fit into the terminology 'make available', the technical knowledge, skills etc must remain with the person receiving the services even after the particular contract comes to an end. The services offered may be the product of intense technological effort and lot of technical knowledge and experience of the service p....
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.... 10. Invensys Systems Inc-317 ITR438 (AAR) 11. Anapharm Inc, In re - 305 ITR 394 (AAR) 12. NQA Quality Systems Registrar Ltd. vs. DCIT - 92 TTJ 946 (Delhi ITAT) Additionally, your Honours' attention is drawn to the protocol to the India - Netherlands Tax Treaty. As per the said protocol, if after signing of the India-Netherlands Tax Treaty, India signs a Tax Treaty with any OECD member country which limit India's right of taxation at source of dividends, interests, royalties, fees for technical services or payments for the use of the equipment to a rate lower or a scope more restricted than the rate or scope provided under the India- Netherlands Tax Treaty, than such restricted rate or scope shall apply to the India-Netherlands Tax Treaty also. Copy of the India- Netherlands Tax Treaty is already attached for Your Honours' reference. Portugal is member country of OECD. India has signed a Tax Treaty with Portugal on 1 April 1998 ie after the India-Netherlands Tax Treaty. Relevant extract of Article 12 of India - Portugal Tax Treaty is reproduced as under: "4. For the purposes of this Article, "fees for included services"....
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....s reimbursement of expenditure from SHGPL in course of rendering services to SHGPL. The said expenses are mainly in the nature of out of pocket expenses like travel, lodging and boarding, visa fees etc of the employees of the Appellant who rendered services to SHGPL under the SSA. The expenses so incurred were reimbursed by SHGPL on a cost-to-cost basis without any mark up. Another way to look at the same would be that if the said expenses were actually incurred by SHGPL itself then such incurring of expenditure would not be regarded as income in the hands of the Appellant. The Appellant therefore humbly submits that just because it has initially incurred the expenditure from a convenience perspective and then recovered the same from SHGPL would not alter the nature of the receipt so as to be regarded as income in the hands of the Appellant. In this regard, attention of the Hon'ble Members is drawn to the various judicial precedents which support the contention of the Appellant that reimbursement of expenditure received is not to treated as income in the hands of the Appellant - 1. Siemens Aktiongelgsellschaft ( 310 ITR 320) (Bom.) 2. Directo....
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....vis the amounts reported by HLPL, HPPL and SHGPL. The learned AO, having satisfied himself with the genuineness of the Appellant's claim, passed an order under section 154 of the Act accepting the claim of Appellant. Accordingly since the learned AO has passed the order under section 154 accepting the claim of Appellant, this ground of appeal should stand resolved." 4.1) From the side of the Revenue Department Ld. CIT (DRs) Mr. S.K.Gupta and Mr. D.C.Patwari appeared. They have also placed on record a written submission and the significant paragraphs are as under :- "The assessee company has entered into Support Services Agreement with its group companies carrying out business activity in India i.e. M/s Hazira Port Private Limited, M/s Shell Hazira Gas Private Limited and M/s Hazira LNG Private Limited through identically worded agreements signed on same date i.e. 28-2-2003, however, effective from 1-4-2002. These agreements are for 10 years from effective date for all the three Indian Companies. Nature of services provided in all he three agreements are exactly similar and are as under : * Commercial support * Logistics, * Public ....
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....tion^ of the convention by one of the States if term is not defined herein shall, unless the context otherwise requires, have the meaning which it has under the law of that State concerning the taxes to which the convention applies. It is clear from above that these terms are to be defined as per domestic law as per the country applying the treaty. In the present case these terms are to be defined as provided in domestic law of India. Honourable Supreme Court has held that the advice rendered by the lawyer would be a piece of technical service in the case of Continental Construction Ld. Vs. CIT (195 ITR 811) (SC). It was further held that services provided by hotel consultants and specialists to a Foreign Hotel was technical service in the case of CBDT Vs. Oberoi (India) (P.) Ltd., 97 Taxmann 453 (SC). In the said case Honourable Supreme Court was interpreting Section 80 O which is given as under : "80-O.Wher the gross total income of an assessee, being an Indian company or a person other than a company who is resident in India, includes any income by way of royalty, commission, fees or any similar payment received by the assessee from the Government of a foreign ....
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....rvice for issue of GDR or long term service contracts like in the present case. In the case of Raymond Limited Vs. DCIT, Honourable ITAT has observed in para 92 as under : "mere rendering of services is not roped in unless the person utilizing the services is able to make use of the technical knowledge, etc. by himself in his business or for his own benefit and, without recourse to the performer of the services in future. The technical knowledge, experience, skill etc. must remain with the person utilizing the services even after the rendering of the services has come to an end. The A transmission of the technical knowledge, experience, skills, etc. from the person rendering the services to the person utilizing the same is contemplated by the article. Some sort of durability or permanency of the result of the "rendering of services" is envisaged which will remain at the disposal of the person utilizing the services. The fruits of the services should remain available to the person utilizing the services in some concrete shape such as technical knowledge, experience, skills, etc."which clearly show that in present case there is transmission of technical knowledge, e....
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.... who assists is doing something which in ordinary circumstances the party assisted could do for himself" - Ramaya Naoka I.L.R. 26 Mad 26 Mad 419 at p. 421." In view of above, it is submitted that services provided by the assessee should be considered as technical services which have been made available to the recipient of service and without prejudice to above, they are covered in royalty as well as information concerning industrial, commercial or scientific experience as per paragraph 4 of Article 12 of India Netherland Treaty. (There is no dispute between the assessee and the Department that these services are taxable as Indian Income-tax Act.)" 5) We have heard both the sides at length. At the out set our foremost observation is that the issues cropped up in this appeal have not been exhaustively dealt with by the lower authorities. For this comment we hereby give our reasons as follows : a) The impugned order of the A.O. is a cryptic and non- descriptive judgement devoid of reasoning. Rather the assessee itself had raised this issue before Ld. CIT(A). Certain age-old case laws have been cited and those are still alive due to their utmost significance. The h....
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....e payments are required to be examined in the light of the bills raised by the assessee against which the payments have made. The A.O. is expected to examine the narration of the service rendered for which the bills were raised. Then if possible the A.O. can also examine the head under which the payees have claimed the expenditure. If we hereby accept the claim of the assessee that the impugned receipts were not in the nature of FTS then an adverse consequence may occur in the cases of those entities who might have claimed the expenditure under the said head. Naturally under common sense a payment in a business is made if it is beneficial for the business; therefore, the nature of payment is to be seen from both the angles i.e. from payers as also payees version. This exercise has not been methodically carried out by the A.O. hence in our conscientious opinion restoration of this aspect back to the stage of the A.O. is the correct remedy. b.2) The next step to find out whether the services in question are 'make-available' comes into operation only when the Revenue takes a view as per the step discussed above that the nature of services are in fact ' fees for te....
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....nd the persons using that knowledge may themselves become expert. So the technical persons using that knowledge are required to be interrogated. Whether 10 years period is not a sufficient period to equip one- self with the knowledge taught or imparted or communicated. Certain examples of professions are given in some of the judgements. We are aware of those findings, but those revolve around the facts of those cases. However if we apply that logic then a person with the basic knowledge can become expert in a long time of 10 years. Even in medical field in 10 years period a student become super specialist. So the exact nature of the knowledge can only be ascertained by examining the documents or designs or the information handed over by the appellant (SIBV) to those Hazira entities. What were the contents of those documents; according to us, yet to be examined. The terms such as 'commercial support', 'Logistic', Public-affairs', 'Human resources' etc. as listed by the appellant are very general in nature. By the nomenclature of the services, as listed above, it is not clear that what technicality was involved in providing that knowledge?. Further, why a ....
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....n, the same is a matter of simple rectification. Since, no legal issue has been raised through this ground, therefore, we find no force in this ground of the assessee. Hence, ground no.3 is hereby dismissed. 8. In the result, ITA No.1150/Ahd/2007 is hereby partly allowed for statistical purpose. B. ITA No. 3950/Ahd/2008 (for A.Y. 2005-06) 9. This is an appeal filed by the assessee arising from the order of learned CIT(A)-XXI dated 27.8.2008 and the grounds raised are reproduced below: "The learned Commissioner of Income Tax (Appeals) - XXI, Ahmedabad (hereinafter referred to as learned CIT(A) has erred on facts and in law in holding that amounts received by the Appellant for rendering support services under the Support Service Agreement ('SSA') qualify as 'Fees for technical services' under Article 12 of the Double Taxation Avoidance Agreement between India and Netherlands ('India-Netherlands Tax Treaty'). 2. The learned CIT(A) has erred on facts and in law in upholding the charging of interest chargeable under section 234A, 234B and 234D of the Income Tax Act, 1961. 3. The learned CIT(A) has also erred on facts and in law....